Rife with plummeting real estate values and political squabbles, San Diego County is still viewed as prime turf for the banking industry.
Consider Charlotte, N.C.-based Wachovia Corp.’s plans in the next three years to hire some 300 private bankers in high-growth areas such as San Diego, along with other markets in California, Florida, Texas and New York. Private banking , an increasingly in-demand service , provides businesses and high net-worth customers with hands-on, one-on-one attention.
“San Diego is seen as a key market for banking in the West,” said Don W. Starkey, senior vice president/city president of Wachovia Bank in San Diego. “San Diego has such tremendous diversity in overall industries , tourism, life sciences, technologies, manufacturing, wholesalers and traditional businesses.”
Add to that, said Starkey, is the region’s proximity to Mexico, and its established ties with Asia and Latin America.
“San Diego has that international flair, like Long Beach and L.A.,” he said. “Many businesses that have an international component continue to thrive and expand. San Diego is becoming more of a global market. This is a place we need to be.”
In agreement is Walter J. Mix, managing director of the Los Angeles office of The Secura Group, a financial consulting firm based in Virginia.
“The San Diego market in general is attractive to them, because it fits their overall business model , to target high-growth large markets in the U.S.,” said Mix, whose firm is part of LECG, a consulting firm in Emeryville. “Given the relative affluence of the area, and its overall business model, it’s probably a good fit for them.”
Mix also agreed that San Diego’s proximity to the U.S.-Mexico border, as well as its association with Asian and Latin American markets, is another bonus.
“It certainly is going to be a major factor from a banking point of view, with the products and services the bank can provide for international trade,” he said. “This tends to be a very strong fee business for banks.”
Diversity is another key to success, and not having “all of your eggs in one basket,” said Mix.
“There is every opportunity for them to have profitability and diversification in that market,” he said.
While the company is still smoothing out its plans for the region, between 75 and 100 employees are expected to be hired at Wachovia branches within the next 24 to 36 months, including a dozen private bankers, said Starkey.
Wachovia’s growth will all depend on its ability to demonstrate value in the market, he added, as well as being able to attract the right talent.
For the private bankers particularly, “We have to be selective on who we hire,” said Frank Newman, Wachovia’s Southern California regional president. “There is no need to go extremely fast.”
Some history: Wachovia’s two major inroads into California involved the March 2006 acquisition of Irvine-based Westcorp, parent of Western Financial; and, in October 2006, Oakland-based Golden West Financial Corp., parent of World Savings Bank.
“That window allowed us to use on-the-ground resources to attract talent, scout out new sites for branch expansion, and build an infrastructure that would support our growth in California,” said Starkey.
“Wachovia had been ‘eyeing’ San Diego for some time, but was willing to wait for the right opportunities,” he said. “Westcorp and Golden West were those opportunities.”
Wachovia has re-branded eight World Savings branches and three Western Financials in the region and plans to open at least two more branches in 2008, said Starkey.
While a lot of attention is given to San Diego’s thriving life sciences and high-tech industries, said Starkey, there are other fertile markets in the region.
“With food processors looking at Trader Joe’s and Whole Foods, and being so close to the Mexican border, there is a strong niche-market influence in this part of the country,” he said. “Distributors or manufacturers cater to Sam’s Clubs and Costco.”
Starkey noted the growers who are developing in-demand wines in places like Temecula, as well as the growing market for Latin foods. All of this is attracting the attention of companies that want a slice of this market, he added.
“There are a lot of strategic buyers out there,” he observed. “Food processors are selling to big-box retailers and getting huge amounts of attention. This works out for the acquired company, and the acquiring or merging company now has access that they didn’t have before.”
Niche markets also are attracting private equity firms that are narrowing their focus, given the less robust economy.
“A few years ago, there was so much money out there, and they were willing to do deals they wouldn’t do now,” he said. “Now, they’re taking a more strategic stance.”
Establishing A Foothold
While some financial institutions have been impacted by the softening real estate market here, Newman said that Wachovia is less vulnerable to those forces.
“We don’t have a huge portfolio of mortgage products impacted by the current downturns, and the acquisitions and mergers we’ve been involved in are not impacted by the downward pressure on housing,” he said. “We don’t have a large base of credit-card customers, which might have added some pressure.”
As well they should, said Ed Carpenter, chairman and chief executive officer of Carpenter & Co., an Irvine-based investment banking firm that specializes in financial institutions.
“San Diego has been one of the 10 fastest-growing counties in California in the rate of household income increases, and also in the top 10 counties in the rate of growth of investment income from non-job-related sources,” he said. “Given that, it’s logical that Wachovia would be looking to establish a foothold there regarding their wealth management goals.”
All of the major U.S. banks, including Wachovia, have been keeping a keen eye on border cities, such as San Diego, which Carpenter said are “banking centers for wealthy Mexicans and Latin Americans.”
“They have tracked a great deal of foreign deposits of border-adjacent towns and opportunity for wealth assets within their wealth-management groups,” he said. “I think this follows Wachovia’s interest in California as the largest retail banking state in the union, and the sixth largest economy in the world.”
Financial services companies, such as Merrill Lynch and Northern Trust, he said, “have had an outstanding experience in California regarding the development of wealth-management services for its residents.”
“It’s logical that Wachovia would follow the lead of other diversified financial services companies that have expanded in the state,” said Carpenter.
The Next Level
Wachovia is set up to address a variety of markets, said Starkey.
“We try to focus our expertise on smaller companies to help them grow efficiently , to become $100 million or $200 million companies,” he said.
Once businesses have matured, bringing in from $10 million to $20 million in revenues, “They move over to our commercial banking group,” said Starkey.
The bank then goes to work helping commercial clients move to the next level, he said, including assembling information on possible mergers and acquisitions. For businesses shooting for $1 billion revenues, said Starkey, “We need the resources of a national or international organization for them to grow.
Their infrastructure won’t support those additional dollars. We talk to the players , national or international , and we help them find likely partners. We keep our ear to the ground.”
It’s all about what Starkey calls “relationship” banking, as opposed to simply processing transactions , a key ingredient of private banking.
In a recent study by J.D. Power and Associates, Wachovia ranked No. 8 out of 22 banks for small-business customer satisfaction.
“It’s certainly above the average overall,” said Jeff Taylor, senior director of J.D. Power’s banking practice. “They showed strengths in two areas that resonate with small business , transaction performance , online or in person at the branch , and in relationships, which are key to a small business.”
For Starkey, these are vital ingredients to keeping up with the shifting needs of customers.
“People used to rely on businesses for their retirement,” he said. “People are taking more ownership about where their retirement is coming from, and that has increased the demand for private banking. They are becoming more discerning about whom they are working with, and they want institutions with stable track records.”